Government is a big part of the mortgage problem

Home Builder with 219-465-8352

Mortgage Market for Conservatives

As a former home builder, and current partner in a mortgage company and consultant to a few real estate related companies, I have an avid interest in what has been happening over the last 18 months in housing and especially mortgages. I have been saying over at Northwest Indiana Real Estate, for months now that the problem is too much regulation. Of course this position isn't held in very high esteem, Presidential candidates are scared to even suggest that the government is getting in the way ... and regulators would lose their jobs if we found that they actually caused the problem.

But they did!

I read The Foundry most every day on my reader, and regularly post from those terrific posts to my numerous sites, including my Northwest Indiana Mortgages site. (Sorry for all the self links, but I'm trying to build a case that I actually understand a little bit). The key question in my mind at the end of last week's craziness? WHAT IS A FAIR POSITION FOR A CONSERVATIVE WHO ACTUALLY CARES ABOUT HOMEOWNERSHIP?

Some exerpts from today's awesome post at the Open $700 Billion for Disastrous Financial System Bailout. Not the Foundry but a well written article with great links:

Either the mortgages are just as worthless as their current market price suggests, in which case the banks that hold them, rather than taxpayers, should pick up the tab (and any insolvent banks should be closed, so that they cannot gamble with depositors’ and taxpayers’ money in the future).

"Or, the mortgages are worth much more than they are currently valued — their current value being set under federal “mark-to-market“ accounting regulations, which require that assets like mortgages be conservatively valued at what they can currently be sold for at the moment, rather than what they would be worth if held to maturity. If that’s the case, then federal accounting regulations need to be immediately relaxed by federal agencies like the SEC that enforce them — as John Berlau argues today in the Wall Street Journal, and as former FDIC Chairman William M. Isaac urged yesterday in a Journal editorial attacking the federally-enforced Fair Value Accounting Rules and Basel II capital rules. (This would also be a good time to revisit the truly senseless accounting regulations imposed by the Public Company Accounting Oversight Board, which cost the U.S. economy over $35 billion per year, and were used by sub-prime mortgage lender Countrywide Financial as a smokescreen to hide its risky business practices)."


Bankers need a reason to start lending again. Sure the government can buy all the junk bonds which have small percentages of sub-prime loans with even smaller percentages of unperforming loans. Imagine, the government buying $700 Billion worth of loans ... at 20 cents on the dollar ... they may actually make money on this investment! But all they really needed to do was relax regulations that don't make sense and cost us billions in overhead and management.

Anyone know a politician with the guts to step up and say that? I'm a little frustrated with John McCain this week for not stepping into the Maverick role and telling Americans what they need to hear. Barack Obama is predictably suggesting more and more government, which is not what we need. I'm waiting ...


Update:  Great post in Wall Street Journal today

"Once upon a time, in the land that FDR built, there was the rule of "regulation" and all was right on Wall and Main Streets. Wise 27-year-old bank examiners looked down upon the banks and saw that they were sound. America's Hobbits lived happily in homes financed by 30-year-mortgages that never left their local banker's balance sheet, and nary a crisis did we have.

Then, lo, came the evil Reagan marching from Mordor with his horde of Orcs, short for "market fundamentalists." Reagan's apprentice, Gramm of Texas and later of McCain, unleashed the scourge of "deregulation," and thus were "greed," short-selling, securitization, McMansions, liar loans and other horrors loosed upon the world of men."


Re-Blogged 1 time:

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  1. Steve Homer 09/24/2008 11:28 PM
Mortgage / Finance
My other blog is
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Stephen A. Cunningham
LandQwest Commercial - Fort Myers, FL

Great post, let me know if you find the politican not afraid to speak up.

Best to you.


Sep 23, 2008 12:25 AM #1
Andrew Mooers | 207.532.6573
Northern Maine Real Estate-Aroostook County Broker

If banks made loans for 15, 20 and 30 years and hung onto the mortgage that long without selling on the secondary mortgage market the rate would be higher but would the loan be made as easy if there was not leveraged collateral, belt and suspenders insurance on the loans that were quickly sold off during the closing? Hmmm...good post!

Sep 23, 2008 12:28 AM #2
Will Nesbitt
Nesbitt Realty at Condo Alexandria - Alexandria, VA
Nesbitt Realty is a family-run brokerage.

Why are we helping those who screwed up? What about those of us who pay our bills?

Sep 23, 2008 12:30 AM #3
Charlie Ragonesi - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros

Nice post and I disagree with you 100 percent. In my simple mind if these companies are not going to be allowed to fail and it is going to cost you and me, which it already is with slow business and high gas prices due to devalued currency, then they need regulation and oversight. They should be private for sure i am with you about big brother is jus getting biugger and scarier. But it seems obviuos they could not control themselves. so wwe either bite the bullet and let them fail or we regulate them so they don't fail

Sep 23, 2008 12:31 AM #4
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

Charlie, the other option is to remove regulations completely, let them loan to whomever they want, but remove the implicit guarantee of the federal government all the way too.


Fannie and Freddie had and continue to have an implied guarantee of the government, letting them borrow at a lesser rate than any normal company.  I'll meet you halfway and fully privatize them, heck let's privatize the post office too while we're at it.  But, before anyone would buy the new companies they need the bad loans taken off their balance sheets.  Sadly, some of those bad loans were the fault of over-zealous regulators 'ordering' them to loan in bad neighborhoods.

Sep 23, 2008 12:39 AM #5
Spencer Hill
Hill Asset Management - Kingstree, SC
#1 Financial Planner -- South Carolina

Great post. The goverment needs to become a market maker in these discounted securities until they get liquid again.

Sep 23, 2008 12:42 AM #6
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Steve - For those who want less and less Government, it seems to be we are getting more and more.  Just take a gander at the lending atmosphere.  It's shaking out that Republicans & Democrats are both behind big Government, greed has no political affiliation.  The Government knows about as much about lending as I do about Molecular Biophysics.  Keep them away... far away.

Sep 23, 2008 12:43 AM #7
Sharon Fleming
Real Living Realty Unlimited - Port St Lucie, FL
Realtor, Port St Lucie-Florida

When do us little people get a bailout!  Great post!

Sep 23, 2008 12:52 AM #8
Tucson Real Estate Experts Anne McKechnie
Coldwell Banker Residential Brokerage - Tucson, AZ
Previews Property Specialist

Having come from a country that has control over everything, the current situation perturbs me. However, if the government can make money on the mortages  by stabilizing the market, and then reselling, then I guess it s better than the alternative...the financial meltdown that we saw last week.

Sep 23, 2008 01:11 AM #9
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

Hey thanks to everyone who commented.  Sounds like we all agree, less government in the long run will require more government intervention in the short run.   I guess one big issue then will be this election.  Will we get a leader that wants to create even more government in the long run?  Or will we get a leader that wants to make this intervention only short term?

Sep 23, 2008 01:58 AM #10
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX

Steve:  I am for limited to NO government intervention/regulation as well.  A free market economy needs to be just that.  It has to regulate itself to work.  Greed and restraint are the natural regulators of the system, not governmental regulations and investigations.  Reblogged this on my blog.  Really wonderful post!

Sep 24, 2008 11:32 PM #11
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

Steve, again thanks for reading and commenting.

Watching Newt Gingrich right now suggest that John McCain walk into the White House today and hammer out a better bill, one that perhaps does let the government buy some of these "mark down" loans, but also remove the regulatory obstacles that created the problem in the first place.  Wow, wouldn't that be amazing!



Sep 24, 2008 11:49 PM #12
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